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The United States pays more in interests on its $33 trillion debt


The U.S. national debt had surpassed $33 trillion last September. The national debt is made up of $25.8 trillion held by the public, and $6.8 trillion in intragovernmental debt. And the annualized cost of servicing the debt was $726 billion in July 2023, which accounted for 14% of the federal spending.

In September 2023, the US Treasury Department reported that the US government spent $213 billion in interest payments on the national debt in the last quarter, up $63 billion from the same period a year earlier. This is the highest quarterly interest payment on record.

The US government's debt has been growing for decades, but it has accelerated in recent years due to the COVID-19 pandemic and the war in Ukraine. The government has borrowed trillions of dollars to finance these events, and the interest payments on that debt are now becoming a significant burden.

The Congressional Budget Office (CBO) projects that interest payments on the national debt will continue to grow in the coming years, reaching $1.4 trillion by 2033. This will make interest payments one of the largest items in the federal budget, surpassing even national defense spending.

There are a number of reasons why America is paying more in interest on its debt. First, the size of the debt has been growing rapidly. Second, interest rates have been rising in recent months. Third, the US government is borrowing more and more money at short-term rates, which are typically higher than long-term rates.

The Federal Reserve has been raising interest rates in an effort to combat inflation. This means that it is now more expensive for the government to borrow money. The key issue is that the U.S. government is borrowing more and more at short-term rates. Indeed, Short-term rates are typically higher than long-term rates. This is because investors are willing to accept a lower return on their investment for a shorter period of time. The US government is borrowing more money at short-term rates because it is facing a number of short-term financial challenges, such as the need to fund the war in Ukraine.

While the rising cost of interest on the national debt is a serious concern for policymakers because the government has less money to spend on other important programs, such as education, healthcare, and infrastructure, this creates an opportunity for the private sector to address societal needs through the market process rather than relying on government spending. Moreover, the rising cost of interest on the national debt also makes it more difficult for the government to reduce its budget deficit.

Since the government is the cause of the rise of the national debt as well as the rising cost of interest on the debt, it can therefore address the issue by reducing the size of the debt by cutting spending or raising taxes. Another option is to refinance the debt at lower interest rates. The government could also try to stimulate economic growth by implementing supply-side policies rather than demand-side policies which will continue to increase government spending, thus, the national debt.

But do politicians really want to reduce the size of government as well as public spending? We all know the answer to this question. If politicians truly wanted to reduce the size of government and spending, government programs and agencies would have been cut a long time ago. But the opposite has been happening and that’s why the national debt has reached unprecedented levels.

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